SIE Equity & Debt Securities Practice Questions
Equity & Debt Securities makes up 11 of every 50 questions on a Tigertest SIE practice test. Here are 10 of the 44 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on FINRA's Securities Industry Essentials content outline. Original questions; 50 per test, weighted like the real 75-question exam, 70% to pass.
1. Which right do common stockholders usually have?
- A.Repayment of par at maturity
- B.Voting for the board of directors
- C.A fixed dividend each quarter
- D.First claim on assets in liquidation
Answer: B. Common stockholders elect the board and vote on major issues. Fixed dividends belong to preferred stock, and creditors are paid before any stockholder.
2. In a liquidation, who is paid first?
- A.Common stockholders
- B.Subordinated debt holders
- C.Preferred stockholders
- D.Secured bondholders
Answer: D. Secured creditors are paid first, then unsecured creditors (debentures), then subordinated debt, then preferred stock and finally common stock.
3. Preemptive rights protect a common stockholder against:
- A.Dilution of ownership
- B.A forced stock split
- C.A fall in the share price
- D.Missed dividends
Answer: A. Preemptive rights let existing holders buy new shares in proportion to what they own before the shares go to the public, so their percentage is not diluted.
4. A cumulative preferred stock means that:
- A.It converts into common stock
- B.The holder may vote on mergers
- C.Unpaid dividends accrue
- D.The dividend rises each year
Answer: C. Unpaid dividends on cumulative preferred accrue in arrears and must be paid before any common dividend. Convertibility is a separate feature.
5. Convertible preferred stock may be exchanged for:
- A.Cash at the call price
- B.Shares of another company
- C.A set number of common shares
- D.A bond of the same issuing company
Answer: C. The holder can convert into a fixed number of common shares, which lets the preferred price follow the common stock's price.
6. A callable preferred stock lets:
- A.The issuer redeem it early
- B.The holder vote on all issues
- C.The issuer skip dividends freely
- D.The holder sell it back at par
Answer: A. The issuer can redeem callable preferred at the call price. Issuers usually call when rates fall, which is call risk for the holder.
7. Preferred stock prices are most sensitive to changes in:
- A.Trading volume
- B.Earnings growth
- C.Voting outcomes
- D.Interest rates
Answer: D. Because preferred pays a fixed dividend, its price moves inversely with interest rates, much like a bond.
8. Who issues an American Depositary Receipt?
- A.A foreign central bank
- B.A U.S. bank
- C.The foreign company
- D.The SEC
Answer: B. A U.S. depositary bank holds the foreign shares and issues ADRs that trade in dollars in the U.S. Holders still carry currency risk.
9. Which risk is specific to owning ADRs?
- A.Prepayment risk
- B.Currency risk
- C.Call risk
- D.Reinvestment risk
Answer: B. ADR dividends and values depend on the foreign share price converted into dollars, so changes in exchange rates affect the return.
10. A rights offering gives existing shareholders the chance to buy new shares:
- A.At par value only
- B.From other shareholders
- C.Above the market price
- D.Below the market price
Answer: D. Rights are short-term and let current holders buy new shares at a subscription price below the market, protecting them from dilution.
Practice all 44 equity & debt securities questions, and the rest of the 200-question bank, in the free SIE training sets. Questions you miss come back until you have mastered them.
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